FERC Issues Order Approving Consent Agreement in City Power Marketing Case
On August 22, 2017, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued an Order Approving Stipulation and Consent Agreement with City Power Marketing, LLC (“City Power”) and its owner, K. Stephen Tsingas (“Tsingas”).1 This was the first order approving an enforcement settlement issued since the Commission re-established a quorum with the addition of Chairman Chatterjee and Commissioner Powelson.
The Order resolved allegations that City Power and Tsingas had engaged in market manipulation in violation of the Federal Power Act2 and the Commission’s Market Manipulation Rule3 by engaging in certain proscribed trading behavior in PJM Interconnection, Inc. (“PJM”), and had violated FERC’s regulation applicable to power marketers requiring a duty of candor in communications with, inter alia, the Commission or FERC’s Enforcement Staff. 4 City Power and Tsingas stipulated to the facts recited in the Stipulation and Consent Agreement, but neither admitted nor denied that they violated the Federal Power Act or FERC’s regulations.
City Power is a virtual trader that has traded in PJM since 2006, and Tsingas is the company’s sole owner. FERC Enforcement Staff conducted an investigation of three types of City Power’s Up-To Congestion (“UTC”) trades in 2010:
So-called “round trip” trades in which a trader would place trades from location A to location B, and simultaneously place offsetting trades from location B to location A, allegedly to eliminate price risk and to collect marginal loss surplus allocations (“MLSA”).5
Allegedly “uneconomic” trades placed between two pricing nodes that were mathematically equivalent (e., had a spread of zero), allegedly solely to collect MLSA payments.6
Allegedly “uneconomic” trades between two nodes with very small price spreads, in which traders allegedly paid transmission charges equal to five times the price spread during the relevant period (even though zero cost transmission service was available) allegedly to collect MLSA payments.7
Following the investigation, the Commission issued an Order to Show Cause why City Power and Tsingas’ trading behavior did not constitute market manipulation.8
The Commission subsequently issued an Order Assessing Civil Penalties, finding that the three types of trades constituted a scheme to engage in fraudulent UTC transactions, thereby violating the prohibitions against market manipulation.9 FERC concluded that City Power and Tsingas had engaged in “round trip” trading for the majority of the relevant period and instituted the second trading strategy for an eight-day period, but abandoned it and replaced it with the third trading strategy when Tsingas’ trading partner expressed concern about the former strategy.10
The Commission also found that, although Tsingas and his trading partner “extensively” used instant messages in connection with the trading strategies, Tsingas misled Enforcement Staff about the existence of these instant messages through testimony and data responses. Further, neither City Power nor Tsingas produced any instant messages during the investigation, but Enforcement Staff subsequently obtained the instant messages.11 The Commission found that this conduct violated the Commission’s regulations.12
The Order required City Power to pay a civil penalty of $14 million and Tsingas to pay a civil penalty of $1 million. The Order also required disgorgement of $1.3 million in unjust profits. The Order further imposed joint and several liability for City Power’s civil penalty and the disgorgement amount.
